In early July, British media quoted the country's security service as saying that Russia has flooded the country with secret agents in recent years, making the Kremlin a major menace to national security.
The reports came days before Prime Minister Gordon Brown's first meeting with Russian President Dmitry Medvedev at the Group of Eight summit in Japan, set for July 7-9.
"These statements are untrue and just ridiculous," Yury Fedotov told the Vesti channel, adding that the annual budget for the British intelligence service is 2 billion pounds sterling (almost $4 billion).
"This is a huge sum, so to say there is a Russian threat, that unfortunately forces the intelligence service to distract their strength from fighting terrorism, is somewhat naive and aimed at simpletons," the diplomat said.
He said all Russian diplomatic activity in Britain was carried out in full accordance with the Vienna convention.
A Russian security source recently alleged that a British diplomat in Moscow was involved in espionage. A number of Russian media sources claimed last Thursday that the diplomat in question, Christopher Bowers, had been described as a high-ranking member of the British intelligence service.
Relations between the two countries have plunged to a post Cold War low since the murder of Russian security service defector and Kremlin critic, Alexander Litvinenko, in London in 2006.
Moscow has refused to extradite Andrei Lugovoi, London's main suspect in the case, citing its Constitution. Unnamed British security service sources recently claimed that the Russian authorities were involved in Litvinenko's death.
The Litvinenko row also led to the tit-for-tat expulsion of diplomats last year, with then-Russian president, Vladimir Putin, stating that, "Britain forgets it is no longer a colonial power and that Russia was never its colony."